January 3, 2020 / 11:11 PM / 23 days ago

Analyst View: What rising Middle East tensions mean for oil market

(Reuters) - The United States launched an air strike against a leading Iranian military commander on Friday, heightening fears of a conflict escalation in the Middle East that could hurt crude supplies in the region.

Iran promised vengeance after a U.S. air strike in Baghdad killed Qassem Soleimani, Tehran’s most prominent military commander and the architect of its growing influence in the Middle East.

Here is what analysts expect in terms of market response:

Ole Hansen, head of commodity strategy, Saxo Bank

** “Today’s U.S. strike at the heart of the Iranian leadership signals a significant escalation. However, the price spike seen today has as opposed to the Aramco attack not been driven by a supply disruption.”

** “A price rise due to supply being disrupted as opposed to a demand driven spike carries the risk of sending prices sharply lower once the situation stabilizes.”

UBS

** “While neither the U.S. nor Iran wish for an escalation in tensions, no one knows if, when, and how Iran will respond. Considering these risks, markets have added a risk premium on fears tensions could escalate.”

** “We assign a higher probability of renewed attacks on oil tankers, ships or/and energy infrastructure in the region than we do on the closure of the Strait of Hormuz, the Islamic Republic also relies on the strait for its crude exports.”

Jim Ritterbusch, president of Ritterbusch and Associates

** The Middle East tensions are escalating at a time when oil supplies were already tightening in response to OPEC production cuts and rising expectations for oil demand improvement off of an expected Phase 1 trade deal.”

** Iranian developments are apt to spur a strong bout of inventory accumulation throughout crude or (oil) product distribution chains.”

** Increasing excess productive capacity in Saudi Arabia could act as a buffer if global oil supplies are disrupted appreciably.”

Paul Sheldon, chief geopolitical risk analyst, S&P Global Platts

** The chances of a broader conflict remain below 50%, although risks are entering new territory.”

** Iranian retaliation could take the form of a quick response by proxies against U.S. allies and assets, but a larger response is likely to be more carefully calculated and indirect in an effort to avoid outright conflict.”

Andy Lipow, president of consultants Lipow Oil Associates

** The oil market is trying to assess the probability that this leads to a supply disruption. Iran, which has already seen their exports cut to minimal volumes, they have little to lose in the way of crude oil exports.”

Carlo Alberto De Casa, chief analyst, ActivTrades

** Oil’s reaction to the U.S. attack on Iran is not a big surprise.”

** The outlook for oil is very bullish with this latest geopolitical tension putting the supply side at risk.”

Edward Moya, senior market analyst at OANDA

** Oil prices are skyrocketing as fears escalate that the Middle East region is about to see intensifying conflict in the region that could eventually end up in war.”

** Killing of a top Iranian commander is likely just the beginning of market moving responses.”

FILE PHOTO: Pump jacks operate at sunset in Midland, Texas, U.S., February 11, 2019. Picture taken February 11, 2019. REUTERS/Nick Oxford/File Photo

Benjamin Lu, analyst at Phillip Futures

** Heightened militaristic actions will generate a risk premium for oil prices as traders deliberate escalating tensions in the Middle East.”

** Oil prices look poised to trade higher as markets look towards tighter supply levels and looming geopolitical concerns.”

Reporting by Nakul Iyer in Bengaluru; Editing by Tom Brown

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